Don't Shop The Mall, Buy The Mall

AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

With value investors scouring the world of stocks for yield REITs naturally come to mind. Those investors who want some retail exposure and yield gravitate toward the shopping mall REITs. There are four big names in the space and undoubtedly you have visited one of their malls: Simon Property Group (NYSE: SPG), Taubman Centers (NYSE: TCO), General Growth Properties (NYSE: GGP) and Macerich (NYSE: MAC).

If you think the economy is improving and you are heartened by declining jobless claims these REITs are at the forefront of increasing purchasing power.

Of these four Taubman and Macerich have the lowest P/Es at 24.04 and 24.26 respectively. However, Macerich has a 3.90% yield to Taubman's 2.30%. As for General Growth, it has negative EPS at -$0.94 with a 2.20% yield and Simon has a 32.86 P/E and a 2.70% yield. Just looking at those numbers undoubtedly Macerich looks to be the winner, but is it all that and a bag of chips?

Let's Have A Mac Attack

Macerich has a forward P/E of 17.70 and has a 40.78% operating margin. Still looking good. However, it underperformed the S&P 500 (only up 9.02%) when so many others including rivals Simon, Taubman, and even General Growth Properties, have outperformed. Analysts predict only 6.60% five year earnings growth (yoy) neck and neck with predictions for Simon at 6.68%. Only meh, now.

Like these other mall REITs Macerich has debt but not as much as its rivals. Taubman has total debt of $2.67 billion to total cash of $29.30 million. At least it's not General Growth Properties with $16.29 billion in total debt to $637.9 million in total cash. Or the worst debt burden like Simon with $22.57 billion in total debt to $456.31 million in total cash. Meanwhile, Macerich has total debt of $3.79 billion to total cash of $76.55 million.

It is growing, just last week completing the acquisition of a mall from Vornado Realty Trust for $500 million. The Green Acres Mall is in a high income area in Valley Stream NY and will feature Macy's, Sears (meh, again), Wal-Mart, and  Kohl's. Macerich is the third largest mall owner, operator, and developer behind General Growth and Simon but boasts over 650 million visitors per year. It owns some very premium shopping centers like Tysons Corner Center in Virginia, for a total of 61 regional shopping centers and 66 million square feet. Macerich reports February 6.

The Best of The Rest

Simon is the biggest of Macerich's competitors with interest in or ownership of 386 properties across the globe to make it the world's largest real estate company. It also has the highest operationg margin of this group at 45.29% Simon reports on February 4.

In an Open Letter to Shareholders from November in rebuttal to a New York Times article about CEO David Simon's compensation the company stated that, "SPG’s cumulative total stockholder return for the last ten years was 583% (a 21% compounded annual return) compared to 33% for the S&P 500 (a 3% compounded annual return). The Company’s equity market capitalization has increased from approximately $2 billion in January 1995, when David Simon was appointed CEO, to over $54 billion equity market capitalization and over $82 billion of total market capitalization as of September 30, 2012."

The takeaway from the back and forth being that CEO Simon's incentives are very much aligned with his performance and that of shareholders and calls for him to stay at the helm until 2019 or forfeit all or most of the package. Sandler O'Neill analyst Alex Goldfarb told Barron's he liked Simon the best of the mall REITs for its management and free cash flow.

Taubman hit a 52 week high on January 28, already up 30.5% in the last year. On January 10, Evercore Partners upgraded Taubman to overweight while downgrading Macerich to equalweight saying that Taubman was trading under net asset value and they liked its more global story with Taubman in China and S. Korea for the last 8 years. Yes, its Asia malls are a mover of the stock whenever good China numbers come out.

The company frequently raises its dividend since it debuted in 1992. Taubman owns 25 malls in the US. Analysts expect 6.06% five year EPS growth (yoy). Taubman owns some of the most popular high end malls in the US like the Short Hills Mall. There's even a Tesla dealership in that mall.  The company reports on February 13.

As for General Growth Properties, thanks to activist investor Bill Ackman and Brookfield Asset Management it sidestepped bankruptcy in 2010. The situation is now complicated by the Brookfield investment which Ackman wants Brookfield to sell to Simon which tendered a hostile bid for General Growth in 2010. Ackman received a letter last August from the General Growth CEO basically saying they want to remain independent.

After the close on January 28 General Growth announced it would purchase warrants of its stock held by Blackstone and Fairholme (but not those sold by Ackman's Pershing Square to Brookfield) sending the stock up more than 2% after hours.

Investors still might want to shy away. With Brookfield owning up to 45% of General Growth (and at much lower prices) it already close to doubled its money. General Growth does own some prime properties like Tysons Galleria and owns 133 regional malls. In its favor, analysts see twice the five year EPS growth rate of its rivals for General Growth at 12.33%. General Growth reports Q4 results on February 4.

The Final Takeaway

The best yield comes from Macerich, no denying that. As the underperformer the company's share price appreciation could quickly catch up to competitors'. General Growth is a name mired in controversy. Simon is a good long term hold and if you think Asia is the story you could go with Taubman. Just first please read the note below to determine if REIT distributions are the kind of yield you want.

Note: Investors should be aware that distributions from REITs may be taxed at personal income tax level rather than ordinary dividend rates unless they are paid out as return of capital so tax rates on REIT distributions can vary from year to year and company to company. Please contact your tax professional or investor relations.


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